Plugged in: apartment communities explore broadband technology: in a soft rental market,...

Current and future expectations of a soft rental market are forcing property owners of all portfolio types to become increasingly focused on providing an added attraction--broadband Internet access. For some multifamily housing communities, this is achieved in cooperation with local cable companies

such as Comcast, Cox and Time Warner, using cable modern technology. For others, the local telephone company is the solution with its DSL (digital subscriber line) technology. These services can be delivered over an existing wiring infrastructure, even on some of the oldest properties. In some cases, however, the service is either unavailable from telephone and cable providers, or the inside wiring infrastructure is incapable of carrying broadband services.

Additional hurdles include gaining legal access to the existing cable television or telephone wiring. Depending on myriad variables, owners may not be able to gain access without a protracted battle; however, the Federal Communications Commission (FCC) provides certain regulations and oversight to help property owners access the wiring.

Briefly stated, the FCC and certain state regulatory overseers directly control if, when and how an owner can access existing cable and telephone wiring on a property. As such, it is critical for owners to understand all federal and state regulations on this subject prior to developing a plan for integrating broadband services on a property. (See "Building a Pathway" on page 27.)

Overcoming Obstacles

Other than through local cable or telephone companies, broadband Internet access can be brought to residents with Internet service providers (ISPs) and private cable operators (PCOs) who specialize in services for apartment communities. Companies such as Noment, InterQuest, Dmisi, MDU Communications and MediaWorks use various technologies to provide broadband Internet and digital video services to apartment residents. These and other companies are continuing to evolve the quality of services they provide and the technologies they use to create broadband data solutions for existing properties.

Service providers and property owners are often forced into becoming innovative with their strategies to overcome inadequate wiring infrastructures, state and federal regulatory hurdles and prudent budgetary concerns. They are turning to technologies and strategies that allow them to avoid legal battles for access to existing cable television or telephone wiring and typically, the need for significant capital expenditures in upgrading existing wiring.

Shocking News

One technology solution promising to overcome every regulatory hurdle and most post wiring issues is digital powerline communications (PLC) technology. Basically, powerline technology provides broadband Internet access through existing electrical wires and outlets located in every apartment building and unit. With this technology installed, every electrical outlet in the unit serves as a source of broadband Interact access, while at the same time continuing to be a source of electricity for lamps and alarm clocks. This removes the concern of not having enough data connections, or data connections in good locations within the unit. Indeed, these are considerations that can make an apartment home more livable and therefore, more marketable.

Powerline technology eliminates the need to engage in battle with incumbent cable or telephone companies for access to the inside wiring because it uses the electrical wires. It removes most of the operational and logistical crises experienced during the post-wiring of a property, such as trenching, landscape repair and the disruption to residents. And depending on a property's size and a number of other variables, the cost of powerline technology promises to be less than the cost of post-wiring a property.

Utility deregulation has made this powerline technology available. The increased competition, decreasing revenues and stock prices, forced the utilities to diversify into more profitable industries while investing in technologies and strategies that allow them to use their existing infrastructure. The result: telephone and broadband Internet services. For apartment property owners, important developments are technologies that convert a property's existing electrical wiring into a broadband Internet network.

Uncle Sam's Two Cents

In April 2003, FCC Chairman Michael Powell issued an inquiry seeking public comment on using existing electrical power lines to provide Internet and broadband services to residential and commercial properties. He and others at the FCC are convinced that such technology and service will provide consumers with the freedom to access broadband services from any room in their home without adding or paying for additional connections, simply by plugging a modem device into an existing electrical outlet.

Following a demonstration of the technology in a trial currently underway by Pepco, a Washington, D.C., area electric utility company. Powell was impressed by what he saw. "This is within striking distance of being the third major broadband pipe into the home," he told reporters. And certainly, Powell and Pepco are not the only enthusiastic parties interested in the technology.

At least a dozen utilities are conducting field trials, including some of the nation's largest companies--Southern Company of Georgia, American Electric Power of Ohio, and Con Edison of New York. At least two utilities, Pennsylvania Power & Light and Ameren of Missouri are expected to launch service this year. But don't expect all of the country's top power companies to rush headlong into broadband.

Electric utilities are a cautious lot. Boards of directors and investors chastened them when a glut of telecom company collapses decimated their late 1990s investments in laying fiber-optic cable, which they planned to wholesale to local phone start-ups. Noting past failures and the electric power grid's resistance to data traffic, many analysts and utility executives remain skeptical. But even skeptics say this year's planned broadband rollouts by utility companies could be a watershed.

"If they go well, you'll see a lot of utilities joining the bandwagon," said Brett Kilbourne, Director of Regulatory Affairs for United Telecom Council, which represents 850 power companies that also offer telecommunications services.

Selling broadband services will supply fresh revenue to a power industry buffeted by the sour economy and the implosion of the energy-trading business. So they have a lot to gain by continuing to support the development of technologies that turn electrical outlets into broadband data Connections.

Just In Time

For apartment properties, a new source of broadband Interact access couldn't come at a better time. The FCC recently voted to phase out discounted access to the local telephone companies broadband networks for their competitors, hobbling many companies from providing more competitive pricing to consumers than is offered by the regional Bells (i.e., BellSouth, Southwestern Bell, Verizon, Qwest). FCC officials and certain industry experts believe utility companies could replace that lost competition, holding down prices.

Assessing the Technology

Bruce Coltman, Director of Information Technology for the National Multi Housing Council (NMHC), found powerline technology to be effective. "NMHC's internal test of powerline technology the past several months has determined that the hardware delivers. This makes us very interested to see how it holds up during broader deployment in apartment communities," he said.

Asked about NMHC's involvement in assessing powerline technology, David Cardwell, Vice President of Finance and Technology, said, "Our evaluation of the technology is part of an ongoing effort to seek viable options for meeting the wide range of wiring infrastructure needs on existing apartment properties. Our hope is that powerline and other related technologies will continue proving themselves as viable solutions. Based on our research, such innovations are certainly needed to increase the competitive service options available to property owners."

Service provider assessments of broadband technologies are also an important piece of the puzzle. While the property owner is ultimately the gatekeeper as to which technologies and services are installed on a property, prudence guides most owners to seek input from their service providers to aid in the decision making process. Bozzuto Management Co., which tested powerline technology, relied on Noment's CEO, Eric Fichtner, and their COO as well as senior engineer, Ken Hoffman. (See accompanying article "Bozzuto Tests Powerline Broadband Technology.")

"Powerline technology possesses interesting possibilities. Its most appealing element is its use of existing wiring infrastructure, avoiding the multiple engineering, logistical and budgetary issues involved with a communications wiring upgrade," Fichter said. "Additionally, its current bandwidth is in development to reach a level capable of delivering voice, digital video and broadband data services through the electrical outlet."

But Hoffman cautions that owners should understand that implementing various tehnologies on a property require that certain logistical concerns be met. "For powerline technology, the challenge lies in appropriately engineering a property so as to take advantage of the existing electrical wiring infrastructure, which includes identifying or creating a connection between each building on the property," he said. "Such challenges will require that a property owner be willing to develop a strong relationship with both the technology manufacturer and service provider. Most importantly, however, owners should understand there is not a Holy Grail--one technology solution that fits every property," Hoffman explained.

Things To Consider

If powerline technology works the way it promises (as it seems to be doing), and if it is an answer to eliminating the need to rewire a property for Broadband services, a brief cost analysis is the next logical step. It is important to note that when comparing the cost of various broadband enabling technologies, factors such as a property's location, its design, types of buildings, state laws and a host of other factors can directly impact the cost. Other factors with rewiring a property include resident disruption, inadvertent property damage and various levels of cooperation from local authorities to issue permits for this work.

1. Building a Pathway

In theory, property owners seeking to provide broadband Internet solutions for their properties primarily have five pathways available: (1) existing cable television wiring; (2) existing telephone wiring; (3) existing electrical wiring; (4) newly installed category 5 wiring; and (5) wireless devices. Keep in mind, there are important issues for owners to understand when attempting to gain access and gain ownership of any existing cable or phone wiring.

"There are some very significant regulatory issues regarding a property owner's right to access existing cable television or telephone wiring for providing an alternative, broadband Internet service to residents. Fortunately, certain FCC regulations do provide for a procedure by which property owners can gain access to cable television wiring. However, these rules often do not apply in all situations, such as in states with mandatory access laws," said Matt Ames, legal counsel for NMHC. He continued, saying that although FCC regulations provide for property owners to access the telephone wiring inside their buildings at a central point, owners should be aware that this can be very time consuming and expensive. (For more information regarding these state and federal regulations contact Jim Arbury of the National Multi Housing Council at jarbury@nmhc.org or Matt Ames of Miller & Van Eaton at mames@millervaneaton.com.)

Once a property owner determines that gaining access to the existing cable television or telephone wiring is not viable, other options to consider are post-wiring the property with new coaxial cable or category 5 wiring, or using the existing electrical wiring. Regarding the capital investment for each of these options, some owners will elect to make the investment on their own and declare it a capital improvement, while others will forego the investment and require their Internet service provider to make the investment. But property owners should understand that the service provider must consider the same financial and service related issues as the owner does.

2. The Options

Category 5 wiring is often the first consideration by property owners and Interact service providers when it comes to post-wiring a property for broadband Internet service, largely because such wiring is widely installed in new construction. However, the logistical and financial issues involved with installing new wiring vary greatly between new construction and post-wiring projects.

The use of coaxial cable technology for providing broadband Internet service is also well established as a major player and broadband pathway for apartment communities. Indeed, such technology has allowed cable companies to leapfrog over telephone companies in the race for subscribers.

Using DSL (Digital Subscriber Line) over existing telephone wires in the multifamily housing industry is based on the successes of the telephone industry in converting traditional voice lines into broadband Internet connections. One of the originators of broadband Internet access, DSL has played a fairly large role in multifamily housing, although, there are some significant hurdles in gaining access and control of the inside telephone wiring to apply this technology.

Each of these pathways is used as the primary benchmarks for comparing the costs associated with installing powerline technology. At the time of writing, the costs for each of these technologies are the same for property owners and service providers alike, allowing for certain equities to bulk purchasing by service providers.

Cost Comparison

To create a financial model for the costs associated with installing wiring or equipment for each of the above pathways, a hypothetical property model was created. This property is a 10-year-old garden-style community with 300 apartment homes and 15 buildings, including a clubhouse. It is located in a non-union labor state for the purposes of not creating a sharp deviation from average labor costs. The property is also located in a non-mandatory access state. The residential buildings do not contain asbestos or mold. For any trenching or boring need to connect the residential buildings by conduit and wiring, the ground is neither frozen nor encumbered by bedrock.

Installing New Wiring

It is noteworthy to mention there are many different schools of thought on the subject of post-wiring a property. In general, the type of wiring to install, the number of outlets and the type of accompanying equipment options are all issues to be addressed as a matter of preference budget and certain physical characteristics of a property.

MSC is a leading low-voltage contractor specializing in the design and installation of broadband wiring solutions for existing apartment properties. And in working with companies such as AvalonBay, Post Properties, Trammel Crow, JPI and First Worthing, MSC has been involved with many of the complexities of post-wiring properties.

Assuming relatively good working conditions (weather, staff, residents) and residential buildings with typical garden-style construction (no unusual roof lines or difficult-to-navigate attic spaces) and installing two broadband data outlets per unit, the cost of post-wiring a property with category 5 wiring would range from $80,000 to $125,000. The cost for post-wiring with coaxial cabling would range from $62,000 to $67,000.

"Owners really must understand that other than the cost of post-wiring a property, the time it will take to complete the project and the resident disruption that will occur must be considered," said Mike Kolb, President of MSC Communications. "While we make every effort to reduce the amount of disruption to residents and the amount of time it takes to complete a project, even the best case scenarios will require patience and understanding from all parties involved, including the residents. It is critical that the contractor and property management meet and carefully coordinate each day's activities. And of course, a plan should be made for the property to inform its residents well in advance of the work beginning, as well as along the way," he advised.

Using Existing Cable Television Wiring

Tee Harton, Director of Engineering Support for coaXmedia, a coax technology manufacturer, has installed broadband enabling technology on several apartment communities. During these installations, Harton has experienced in most cases that coax-based technologies do not require installation of new coaxial cabling (a distinct advantage of the technology), although certain equipment attached to this wiring may require upgrading. Assuming that the property owns its existing coaxial cabling, according to Harton, "The cost of outfitting the hypothetical model property would be somewhere around $40,000 to $45,000, depending on the state of the existing wiring. This price would include modems for each unit."

But as previously addressed, the primary issue of importance before installing a coax-based solution is owning or having unfettered access to the existing cable television wiring.

This typically means there is not an existing cable service agreement preventing the owner from offering the services of another broadband provider. It also typically means the property has gained control and ownership of the cabling by way of the FCC's regulations guiding the disposition process for the cabling, or some previous contract language that accomplished the same objective.

If a property does not own or have legal access to the existing coaxial cabling, another $62,000 to $67,000 would be added to the above coaXmedia figures for post-wiring the property with a new coaxial cable distribution system.

Using Existing Telephone Wiring

The use of existing telephone wiring and the technologies available for using this pathway to create broadband Internet access, is sound, proven and cost-effective. As previously addressed, gaining access to and control of the existing telephone wiring has proven to be very difficult and expensive for property owners.

For a variety of legal, political and historical reasons, the FCC has not taken an aggressive role in helping property owners obtain access to the existing telephone wiring in their buildings.

The result is that competitive broadband service alternatives in the apartment market that depend on this technology continue to lag. The number of companies that attempted to take on the historical telephone monopolies have failed or been forced to retrench, due in large part to the FCC's inaction.

However, making the assumption that the property owner of the hypothetical model property can gain access to the inside telephone wiring, an average cost of such equipment is taken from DSL industry leaders such as Tut, Cisco, Copper Mountain and Ascend. Depending on many of the same variables effecting the installation of coax-based technology, the cost of installing a DSL solution is $45,000 to $75,000 for the hypothetical model property.

Using Existing Electrical Wiring

As with other broadband enabling technologies, there are certain variables associated with calculating the cost of installing a powerline technology solution.

Primarily, these include the condition of the existing electrical wiring, the condition and location of the meters and the number of transformers on a property.

Telkonet, a company that found its original success in the hotel industry, has rapidly come to understand the dramatic differences between hotel and apartment property owners in their operational, service and financial decisions.

Through working closely with Bozzuto and Noment, Telkonet has restructured its cost models for equipment, allowing for a successful deal between Noment and Bozzuto for The Whitney in Bethesda, Md.

Ron Pickett, President of Telkonet, said, "Currently, the manufacturing of certain components involved with the powerline technology solution is being changed to effect more competitive pricing.

By January 2004, for the hypothetical model property, the cost of equipment and installation labor required for a powerline solution will be $83,000 to $100,000, which includes a modem for each unit," he said. Telkonet is continuing to work with property owners to ensure their technology remains competitive in price and performance.

"Based on the beta-test we've completed [with Bozzuto], the distinct advantage of powerline technology is that there is absolutely no disruption to the residents. There is no entering residents' units, external storage closets or mechanical rooms.

The technology's design creates an installation process that is nearly invisible to the residents, which certainly can't be said of post-wiring a property with new category 5 or coaxial cabling.

But the real sex appeal of this technology is that from the moment the switch is flipped, every electrical outlet in every residential unit is live with both electricity and broadband Internet access," said Skokan.

No Such Thing As 'One'

When meeting the challenges of providing broadband Internet access for apartment residents, there is no such thing as "one size fits all."

Depending on the quality of the existing wiring, state and federal regulations, the status of existing service provider contracts, budgetary considerations and the availability of broadband service from the current service providers, property owners must explore and understand the entire menu of broadband wiring technology and service options.

Indeed, issues involving the technologies discussed (and certainly those that have not been discussed) require a cautious, skeptical approach.

However, as demonstrated by Bozzuto Management, when the right technology and service partners are brought together in a cooperative relationship, the hurdles of providing broadband Internet access can be overcome, and the objective of keeping a property competitive within the marketplace can be achieved.

Author's Note: The subject of wireless technology and its associated costs is not addressed herein, as certain wireless technologies have not met with success in the apartment industry. Today, while the technology holds certain limited advantages, its deployment in multifamily housing communities is not widely considered efficacious solution for owners.

Author's note: For any of the broadband pathways discussed above, an additional $50,000 to $100,000 would be added to their respective costs if there was not an existing backbone (wired or wireless) connecting each of the residential buildings to a central point, which typically does not exist.

Bozzuto Tests Powerline Broadband Technology

Located in the heart of Bethesda, Md., The Whitney at Bethesda Theatre offers unusual character. Developed and managed by The Bozzuto Group, this exceptional luxury apartment property was designed around a landmark Art Deco theater. Residents enjoy spectacular views, as well as features and amenities that include an impressive menu of broadband Internet service options.

As with many other apartment communities in the area, Internet connections from the local cable mid telephone companies are available, of course, but Bozzuto wanted to offer another connectivity option for its residents. This led Scott Skokan, Vice President of Maintenance and Technical Service for Bozzuto Management Co., to research and test powerline technology.

"We are always exploring ways to improve our residents' access to advanced technology services," Skokan said, "But our industry has been besieged with a number of new technologies and service providers over the years. Some have worked and some have not. So prudence dictates a cautious approach." Many of Skokan's industry colleagues share similar sentiments.

Carl Bonner, Senior Vice President of Information Technology for Post Properties, said that 95 percent of the broadband or digital technology companies who have contacted him have never deployed in a single apartment property. "It's all someone's garage project. Post and others in the industry have gotten more than a few skinned knees in this realm. So being cautious and skeptical is the only way to approach new technologies. But I do have to remind myself that Apple and HP both started in garages," Bonnet said.

Indeed, the apartment industry has taken its share of knocks with new service providers and technologies. So, with the failed deployment of certain technologies and service provider bankruptcies, owners should be cautious about the technology and service provider decisions made for their properties.

"The problem is that technology companies enter our market without first researching the issues that are most critical to us--the financial, legal, regulatory and operational hurdles we have to overcome when deploying new technologies or services. They oftentimes do not understand or realize the impact of our industry's history with new telecommunications service providers and their technologies of only a few years ago. They do not understand that property owners, on the average, do not want to become a broadband Internet service provider to their residents. However, while we are cautious and skeptical, we continue looking for new technology solutions and providers. You just never know when you are going to stumble upon the one that fits a situation in need," Bonner said.

"We approached this technology with an appropriate level of tentative skepticism," Skokan said. "When we decided to explore powerline technology, we selected one property in our portfolio for a controlled beta-test, a garden-style community that would present a host of challenges. Any additional deployments, particularly at a site like the high-profile Whitney, were subject to the results of this beta-test."

The Beta Test

To draw his blueprints for the apartment industry's first test of powerline technology, Skokan selected a property that could provide an adequate challenge for the technology, but would not overly inconvenience residents if it failed. After careful consideration, Hunters Glen, a 154-unit community, located in Upper Marlboro, Md., was selected for the beta test. Skokan then developed loosely tied partnerships with Noment and Telkonet--an Internet service provider and the manufacturer of powerline technology--and outlined Bozzuto's policies, procedures and expectations.

The beta-test began with the installation of Telkonet's technology and Noment's services in the clubhouse. After the initial testing was complete, all of the company's leasing office computers were connected with the goal of providing Internet access from every electrical outlet in the building for a continuous 21-day period without disruption.

When that initial test proved successful, Skokan expanded the test to two of the properly"s residential buildings. Building residents were invited to test drive the new technology. A total of 32 units had Telkonet's equipment and Noment's services available. The line connecting the residential building and clubhouse was a separate cable television, coaxial cable. Concurrent to this test, Skokan began testing the Telkonet modem from his own laptop.

"I tested the services from several exterior outlets, a vacant unit, our model apartments and multiple outlets within the clubhouse," Skokan said. "The system worked flawlessly at each location."

The 60 day, expanded beta-test was also successful.

"We even had a resident who disconnected his existing DSL phone line service in favor of the new PLC technology because it gave him significantly greater laptop mobility.

"Based on our tests, this new technology can offer a sound and dependable alternative," Skokan said. "We're excited to be one of the first in our industry to make it available to residents."

Powerline Broadband Technology--How It Works

Electric companies may act as broadband Internet service providers, but they are just one side of the coin. The other side is the technology that allows broadband Internet signals to travel from the electrical meters attached to each apartment building, into every electrical outlet in a resident's unit.

A device termed a "Conditioning Unit" (CU) is placed near the electric meters of each building. The CU acts as a gateway for delivering broadband Internet access to resident's electrical outlets over the same wire providing voltage to run electrical appliances. From this device, the properties Internet service provider makes a connection to the outside Internet world. This connection can be either a DSL, cable modem or T-1 connection.

The real magic of the CU is how it filters and separates the electricity used to turn on a lamp, from the broadband Internet signal used to surf the Net. The CU and its filters are the connection between the Internet world and each electrical outlet within the resident's unit. However, as promising as the technology may seem, it is being explored by the apartment industry with caution.

Larry Kessler is a multifamily housing industry advisor on the subjects of broadband Internet and digital video services, technologies, regulations, wiring infrastructure and contract negotiations.